Technology No Longer Leading the Charge

Joshua Greenbaum, principal at Enterprise Applications Consulting, said there
is no doubt SAP will continue to be a
development company, but technology is not leading the charge, as it was
several years ago.
"The issues in front of customers today are not about some new technology
that they haven't heard about that they're going to have to adopt in the next
five years to be competitive," Greenbaum said. "The most that market could possibly
absorb is already in the market today. In that sense, Leo [Apotheker] is well-positioned.
He fits the requirements for the market quite well."

But SAP has a lot riding on its growth
strategy that, in large part, centers on the success of Business ByDesign.
Announced last year, Business ByDesign is an on-demand, fully integrated ERP (enterprise
resource planning) suite. Beyond its SAAS (software-as-a-service) status,
Business ByDesign is also the basis for SAP's
next-generation architecture.

"It's entirely model-based development, entirely services-based from the
ground up. It's broken into a series of logical, relatively fine-grained,
separately installable and purchasable components with a very modern,
task-based user interface. And yet it's built on top of this very sophisticated
data model based on the SAP Business Suite,"
said Shepherd. "It is the product of the future."
SAP forecasts a strong 2008. Read more here.
It's also the revenue hope of the future-if not in its current form, then as
the next-generation code base, according to some analysts. But SAP
has also said that by moving to a volume-based business-a SAAS model,
essentially-it plans to double its customer base by 2010 and increase its
margins significantly.
At a Feb. 26 Goldman Sachs technology conference Kagermann said that through
the planned decrease in spending around products and research and development-SAP
will complete its investment in Business ByDesign this year-the company should
be able to get to a 35 percent operating margin, closer in line to competitors
Oracle and Microsoft.
"It's a question of timing," said Kagermann. "With our base business behind
our investments, now it's about showing in -08 we can integrate Business
Objects [acquired earlier this year] and improve their margin. I am confident
in them." Furthermore, Kagermann said he expects that 2008 will be the last
year for major investment in Business ByDesign development. "Given all this ... and
we get our act together, then clearly we can improve our margin much faster
than we have done in the past," he said.
In its fourth-quarter earnings report Jan. 30, SAP
said its operating profit rose 2 percent, to 1.112 billion euros, or $1.65
billion. The company said its margins will creep up in 2008 to between 27.5 and
28 percent of revenue.
Following Kagermann's keynote, Goldman Sachs analyst Sarah Friar released a
research note characterizing SAP's margin
efforts as a reach, at best.
"A key area of focus for investors, Business ByDesign, remains on track in
terms of spending, revenue goals and product readiness. SAP
is taking a thoughtful approach to bringing the product to market country by
country," wrote Friar. "We believe the current goals are quite a stretch, but
in the event of a further slowing macro environment and its potential negative
impact on core application sales, SAP can
probably rein in some of the BBD investment
to protect the bottom line."